TOPICS NAMES

RATIO ANALYSIS
FUNDFLOW
CASH FLOW
 PRESENTED BY :

RAKESH GANGURDE

TRUPTI SARODE

SWATI DALVI

SUPRIYA THETE

NAMRATA MHATRE

SAVITA PATOLE
 MEANING OF RATIO
• Means comparing of two related financial
amount. If both the amount are from revenue
statement, it will termed as revenue ratio. if
both amount is from balance sheet it will
termed as balance ratio. if one amount is from
balance sheet & other is from revenue it will
termed as combined ratio.
 RATIO ANALYSIS
TYPES OF RATIO:

REVENUE RATIO
BALANCE SHEET RATIO
COMBINE RATIO
• REVENUE RATIO : If both amounts from
revenue statement is known as revenue ratio.
• BALANCE SHEET RATIO : If both the amounts
from balance sheet it will be termed as
balance sheet ratio.
• COMBINE RATIO : If one amount is from
revenue and another from balance sheet then
it will termed as combine ratio.
 1.GROSS PROFIT RATIO/TRADING
PROFITABILITY RATIO

GROSS PROFIT
_________________________
X 100 =____%
NET SALES

This ratio indicates trading profitability higher

ratio means higher profit and vise-versa
 2.NET PROFIT RATIO

NET PROFIT
___________________
X 100 = _____ %
NET SALES

( NET OPERATING PROFIT,NPBT,NPAT)

This ratio indicates overall business

profitability higher the ratio higher is the
profit and vise-versa.
 3.EXPENSE RATIO

EXPENSES
_____________________
X 100 = ____%
NET SALES
(OPERATING EXP, NON-OPERATING EXP, OFFICE AND
ADDMINISTRATION EXP, SELLING AND DISTRIBUTION EXP)

This ratio indicate expenses in relation to sales higher

ratio means higher expenses and lower profit and vise-
versa
 4.OPERATING RATIO

OPERATING COST
________________________

NET SALES × 100 =_____%

OPERATING COST = COGS + OPERATION EXP OR
OPERATING COST =SALES – NET PROFIT

This ratio indicates total cost of business operation in

relation to net sales, higher the ratio higher is the cost
and lower will be profit and vise-versa
5.STOCK TURN OVERR RATIO/BUYING
AND SELLING EFFICIENCY RATIO
COST OF GOOD S SOLD
___________________________________
=_______TIME
AVERAGE STOCK
OPENING STOCK + CLOSING STOCK
_________________________________________
AVERAGE STOCK =
2

This ratio indicates buying and selling efficiency more

number of time means better efficiency .
 II .BALANCE SHEET RATIOS
1. CURRENT RATIO/WORKING CAPITAL RATIO/BANKERS
RATIO

= __:1
CURRENT ASSETS
____________________________

CURENT LIABILITY

This ratio indicates short term solvency the

standard 2:1 lower ratio indicate inadequate
working capital and difficulty in payment to
current liability .
2.QUICK RATIO/LIQUID RATIO/ ASID TEST
RATIO
QUICK ASSET
______________________________
= _____:1
QUICK LIABILITIES
QUICK ASSET = CURRENT ASSETS - CLOSING
STOCK - PREPAID EXPENSES.

CURRENT LIABILITY = CURRENT LIABILITY BANK

OVERDRAFT.

This ratio indicates immediate solvency, the standard is 1:1 lower ratio
indicate inadequate liability and difficulty in payment to immediate
liability
 3.STOCK - WORKING CAPITAL RATIO

CLOSING STOCK
___________________________
X 1OO _____%
WORKING CAPITAL

WORKING CAPITAL = CURENT ASSETS – CURRENT LIABILITY

This ratio prescribed closing stock as percentage to

working capital, higher ratio means higher stock lower
liquidity and vise-versa
 4.PROPRITORY RATIO

PROPRITORS FUND
_____________________________
X 100 ____%
TOTAL ASSETS

TOTAL ASSET = FIXED ASSED + INVESTMENT+

CURRENT ASSET.

This ratio indicates long term stability higher ratio

means higher contribution by owners and better
long term satiability and vise- versa.
 5.DEBT- EQUITY RATIO

DEBT
____________ = _____:1
EQUITY
DEBT = BORROWD FUND
EQUITY = PROPRITORS FUND
This ratio indicate long term solvency, the standard
is 2:1 lower ratio indicates under utilization of fund
chance of expansion and lower returns to the
owner. higher ratio indicates chances of long term
insolvency
 6.CAPITAL GEARING RATIO

FUNDS HAVING FIXED RETURNS

_____________________________________________________
=_____TIME
FUNDS NOT HAVING FIXED RETURNS
FHFR = PREFRENCE SHARES + BORROWED FUND
FNHFR= EQUITY SHARES + RESERVES AND
SURPLUSE – MISCELNIOUS EXP.
This ratio indicates fluctuation in equity dividend,
more number of times means higher gearing higher
risk higher profit and higher loss and vise-versa
 III. COMBINE RATIOS
1.EARNING PER SHARE RATIO

NPAT – PREFERANCE DIVIDENT

_____________________________________________
= RS. ___PER SHARE
NO.OF EQUITY SHARES (ISSUED)

This ratio indicates profit available for share holders.

2.RETURN ON EQUITY SHARE CAPITAL RATIO

NPAT – PREFRENCE DIVIDEND

___________________________________________
X 100 ______%
EQUITY SHARE CAPITAL

This ratio indicates profit availble for the equity

share holders.
 3.RETURN ON EQUITY SHAREHOLDER FUND
RATIO
NPAT-PREFERANCE DIVIDEN
___________________________________________
X 100 = ____%
EQUITY SHAREHOLDER FUND

EQUITY SAHRE HOLDERS FUND = EQUITY SHARE

CAPITAL + RESERVES AND SURPLUSE

This ratio indicates profit available for equity share

holders.
4.RETURN ON PROPRITERS FUND/ SHARE HOLDERS
FUND/NET WORTH RATIO

NET PROFIT AFTER TAX

____________________________________

PROPRITERS FUND
X 100 = ____ %

PROPRITERS FUND = EQUITY SHARES +

PREFERANCE SHARES + RESERVES AND
SURPLUSE

This ratio indicates profit available for

proprietors fund.
 5.RETURN ON CAPITAL EMPLOYED RATIO
NET PROFIT BEFORE TAX + INTEREST
_____________________________________________________
X 100 =_____%
CAPITAL EMPLOYED

CAPITAL EMPLOYED = PROPRITES FUND + BORROWED

FUND
INTEREST ( EXPENSES) =INTEREST ON BORROWED
FUND (EXCLUDING INETRES ON BANK OVREDRAFT)

This ratio indicate profit available for capital employed

ALL THE ABOVE GIVEN RATIO’S ARE
THE PROPRITERY RATIOS IN
RELATION TO CAPITAL INVESTED,
HIGHER RATIO INDICATES HIGHER
PROFITABILITY AND VISE-VERSA
 6.DIVIDENT PAY OUT RATIO
(EQUITY) DIVIDENT AMOUNT
____________________________________________
X 100 =______%
NPAT – PREFERENCE DIVIDENT
OR
DIVIDENT PER SHARE
________________________________
X 100 = _______%
EARNING PER SHARE
This ratio indicates dividend declared out of total profit
available for equity share holders.
OR
Higher ratio means higher dividend pay out and lower
transfer to reserves.
 7. PRICE EARNING RATIO

MARKET PRICE PER SHARE

_______________________________________
= ______ TIME
EARNING PER SHARE

This ratio indicates market price in relation to

earning per share more number of time means
higher market price and share are to be sold and
vise – versa.
 8.DEBTORS TURNOVER RATIO
CREDIT SALES
=______TIME
_______________________________________________________

AVERAGE DEBTORS + AVERAGE BILLS

RECEIVABLE
AVERAGE COLLECCTION PERIOD
AVRG DEBTORS + AVRG BILLS
RECEIVABLE 365DAYS/12MON
______________________________________________
X
CREDIT SALES THS/52 WEEKS

= __________D/M/W.
• This ratio indicates collection
efficiency and credit period allow to
customer more number of time
means better collection efficiency
and less credit period allow to the
customers.
 9.CREDIT TURNOVER RATIO
CREDIT PURCHASE
= ___TIMES
___________________________________________________________
AVRG CREDITORS +AVRG BILLS PAYABBLE
AVERAGE PAYMENT PERIOD

AVRG CREDITORS +AVRG BILLS PAYABLE 365D,12M

_______________________________________________________
X ,52W
CREDIT PURCHASE

= ________D/M/W

This ratio indicates payment efficiency.

 10.INTEREST COVERAGE RATIO

NPBT +INTEREST EXPENSES

_________________________________________
= _____TIME
INTEREST

This ratio indicates safety and security to outsiders.

 FUND FLOW STATEMENT
 IS A STATEMENT OF CHANGING IN FUND
DURING THE YEAR.

 FUND = WORKING CAPITAL

 GIVEN IN THE QUESTION

1. BALANCE SHEET FOR 2 YEARS
2. ADDITIONAL INFORMATION.
 ANSWER TO BE PRESENTED
1. FUND FLOW STATEMENT

2. STATEMENT OF CHANGES IN WORKING

CAPITAL.

3. PROFIT AND LOSS ADJUSTMENT ACCOUNT.

4. NON-CURRENT ACCOUNT’S
 STEPS TO SOLVE THE PROBLEM
1. BIFORCATE THE BALANCE SHEET BETWEEN
CURRENT AND NON-CURRENT ITEMS.
2. PASS JOURNAL ENTRIES FOR ADDITIONAL
INFORMAION.
3. PREPARE NECESSARY ACCOUNTS.
4. COMPARE THE BALANCE SHEET ( CURRENT AND
NON-CURRENT).
5. MAKE POSTING FOR JOURNAL ENTRIES.
6. CLOSE THE NON-CURRENT ACCOUNTS.
7. CLOSE THE ADJUSTED PROFIT AND LOSS ACCOUNT.
8. BALANCE THE FUND FLOW STATEMENT.
 M/S………
FUND FLOW STATEMENT FOR THE YEAR ENDED………..
PARTICULARS AMOUNT
I. SOURCES
ISSUE OFEQUITY SHARES XXXX
ISUUE OF PREFERENCE SHARE XXXX
FUND FROM OPERATIONS (PROFIT) XXXX
ISSUE OF DEBENTURES XXXX
LOAN TAKEN XXXX
SALE OF FIXED ASSETS XXXX
SALE OF INVESTMENT XXXX
TAX REFUND XXXX
DIVIDEND RECEIVED XXXX
INTREST RECEIVED XXXX
I) XXXXXX
 PARTICULARS AMOUNT
II. APPLICATIONS
BUY BACK OF SHARES XXXX
REDUMPTION OF PREFERENCE SHARE XXXX
FUND LSOT IN OPERATION (LOSS) XXXX
REDUMPTION OF DEBENTURES XXXX
LOAN REPAID XXXX
PURCHASE OF FIXED ASSETS XXXX
PURCHASE OF INVESTMENT XXXX
TAX PAID XXXX
DIVIDEND PAID XXXX
XXXXXX
II)
NET INCREASE OR DECREASE IN WORKING CAPITAL ( I – II ) XXXXXXX
 STATEMENT OF CANGING IN WORKING CAPITAL

PARTICULARS OPENING CLOSING CHANGE IN WORKING CAPITAL

INCREASE DECREASE
I) CURRENT ASSETS
DEBTORS 75 175 100 -
STOCK 60 50 - 10
BANK CASH 45 290 245 -
I) 180 515 - -
II)CURRENT LIABILITIES
CREDITORS 70 90 - 20
BILLS PAYABLE 40 30 10 -
II) 110 120 - -
( I – II) 70 395 355 30
INCREASE IN WORKING CAPITAL 325 - 325
395 395 355 355
 PROFIT AND LOSS ADJUSTMENT ACCOUNT

Dr Cr

PARTICULARS AMOUNT PARTICULARS AMOUNT

TO DEPRECEATION XXX BY OPERATING BALANCE XXX

TO NON-OPERATING EXP XXX BY NON-OPERATING INCOME XXX

TO PROVISION FOR TAX XXX

TO APPRICIATION BY FUND FROM OPERATION BAL FIG

PROPRITOR DIVIDEND XXX (EFFECT IN SOURSES)

TRANSFER TO RESERVES XXX
TO CLOSING BALANCE XXX
TO FUND FROM OPERATION BAL FIG

(EFFECT IN APPLICATION)

XXXX XXXX
 STATEMENT OF CHANGING IN
WORKING CAPITAL
IN THS STATEMENT WE CALCULATE INCREASE OR
DECREASE IN WORKING CAPITAL DUE TO
CURRENT TRANSACTIONS .WE ASLO CALCULATE
EFFECT OF INDIVIDUAL C/A AND C/L ON
WORKING CAPITAL CURRENT ASSETS IS
DIRECTLY RELETATED WERE AS CURRENT
LIABILITY IS INVERSELY RELATED TO WORKING
CAPITAL.
CURRENT ASSET – CURRENT LIABILITIES = WORKING CAPITAL
 CASH FLOW STATEMENT

Introduction: Cash flow statement is a tool

with the finance manager to know the
changes in balance of cash and bank, since
one date to next date after a gap, usually the
accounting year. Cash flow statement
analyses the reasons for changes in balance
of cash in hand and at bank between two
accounting periods. It shows inflow and
outflow of cash i.e., sources and application
of cash during the particular period.
Complementing the balance sheet and income
statement, the cash flow statement (CFS), a
mandatory part of a company's financial reports
since 1987, records the amounts of cash and
cash equivalents entering and leaving a
company. The CFS allows investors to
understand how a company's operations are
running, where its money is coming from, and
how it is being spent. Here you will learn how
the CFS is structured and how to use it as part
of your analysis of a company.
Uses of cash flow
Cash flow statement is an important tools for short
term analysis
1. Cash flow statement helps to understand the ability of
a company to generate cash from its current or
continuing operation.
2. It helps to understand the ability of the company to
meet its financial commitments in the time and pay
dividends.
3. It helps to know the free cash flow available with the
company. free cash flow is the amount of cash that
remains after deducting funds of a company must
commit to continue operating at its planned level.
CONTINUE…

4.It provides information of all the investing

and financing activities taken place during
the year.
5.It shows the relation between profitability
and net cash flows.
6.It increase the comparability of reported
performance by different organizations.
 Steps for solving cash flow problem
1. Bifurcate B/S between current and non current
items and cash and cash equivalent.
2. Pass journal entries from other information.
3. Posting from journal entries.
4. Close non-current accounts.
5. Close adjusted Profit and Loss account.
6. Compare current transactions.(i.e change in
working capital).
7. Balance the cash flow.
 M/S……….
CASH FLOW STATEMENT FOR THE YEAR ENDED
A) CASH FLOW FROM OPERATING ACTIVITIES
NET INCOME XXX,XXX
ADJUSTMENTS TO RECONCILE NET INCOME TO
NET
CASH PROVIDED BY OPERATING ACTIVITIES:
DEPRECIATION AND AMORTIZATION XX,XXX
CHANGES IN OTHER ACCOUNTS AFFECTING
OPERATIONS:
(INCREASE)/DECREASE IN ACCOUNTS RECEIVABLE XXXX
(INCREASE)/DECREASE IN INVENTORIES XXXX
(INCREASE)/DECREASE IN PREPAID EXPENSES XXXX
INCREASE/(DECREASE) IN ACCOUNTS PAYABLE XXXX
INCREASE/(DECREASE) IN TAXES PAYABLE XXXX
NET CASH PROVIDED BY OPERATING ACTIVITIES XXX,XXX
B) CASH FLOW FROM INVESTING
ACTIVITIES
CAPITAL EXPENDITURES (XXX,XXX)
PROCEEDS FROM SALES OF EQUIPMENT XX,XXX
PROCEEDS FROM SALES OF INVESTMENTS XX,XXX
INVESTMENTS IN SUBSIDIARY (XXX,XXX)
NET CASH PROVIDED BY INVESTING ACTIVITIES (XXX,XXX)
C) CASH FLOW FROM FINANCING
ACTIVITIES
PAYMENTS OF LONG-TERM DEBT (XX,XXX)
PROCEEDS FROM ISSUANCE OF LONG-TERM DEBT XX,XXX
PROCEEDS FROM ISSUANCE OF COMMON STOCK XXX,XXX
DIVIDENDS PAID (XX,XXX)
PURCHASE OF TREASURY STOCK (XX,XXX)
NET CASH PROVIDED BY FINANCING ACTIVITIES (XX,XXX)

INCREASE / (DECREASE) IN CASH XXXXX

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